Renewable energy is key to economic growth in emerging Asia market

Emerging Asia expected to grow 6.2%.

Despite the market turmoil surrounding Brexit, the attraction of growth prospects of Emerging Asia (Southeast Asia, China and India) should continue to expand, spurred on by an emphasis on renewable energy projects.

A new report, Economic Outlook for Southeast Asia, China and India, by the OECD Development Centre in Paris, found that real GDP growth in Emerging Asia is expected to remain robust at 6.5% in 2016, and grow at an average of 6.2% over the period of 2017-2021.

The reason: continued domestic consumption, spurred on by developing alternative energy sources. Of the nations covered in this report, India is expected to be near the top of the list in terms of rapid growth, while China will see a slowdown. Overall, growth in the Association of Southeast Asian Nations (ASEAN) is projected to average 4.8% in 2016 and 5.1% over the period of 2017-2021. Growth will be strongest in the Philippines, Vietnam and the CLM (Cambodia, Lao PDR and Myanmar) countries, according to the report.

Accompanying this growth will be a push for renewable energy sources, such as wind, solar and hydroelectric. India and China are making the largest investments in renewables, while Vietnam, Thailand, Malaysia and Lao PDR are promoting renewables, with large investments in hydropower, the report said.

India, China and Indonesia have received the largest inflows of money (about 60%) from greenfield Foreign Direct Investment (FDI.) The FDIs allow investments, technology and expertise in renewables that are creating a demand for new green jobs. Considering all renewable energy technologies, the leading employers in 2015 were China, Brazil, the United States and India, according to the Renewables 2016 Global Status Report .

The Economic Outlook for Southeast Asia, China and India report said the area’s main challenge is to “set the right conditions for the development of renewable energy in Emerging Asia and requires addressing the challenges of grid access, administrative barriers and energy pricing mechanisms.”

“Harnessing Emerging Asia’s enormous potential for renewable energy is vital to mitigate climate change and facilitate the transition to a low-carbon economy. It also provides opportunities for enhanced energy security, job creation and reduced air pollution,” said Mario Pezzini, Director of OECD Development Centre and Special Advisor to the OECD Secretary-General on Development.

But all is not entirely positive. China has suffered an economic slowdown, and exports over the past five years also have slowed, the OECD said. Low interest rates have also factored into slower economic growth and this has strained the region’s banking system. Productivity levels also have stagnated and this can be improved if companies use more technology and adopt more productivity improvements from companies outside of the region. The report also said “achieving sustained growth will require Emerging Asian policymakers to manage slowing export growth, the impacts of persistent low interest rates in the advanced economies, as well as plateauing productivity growth in the region.”

Investments in renewable energy have increased and hit a milestone in 2015. “For the first time in history, total investment in renewable power and fuels in developing countries in 2015 exceeded that in developed economies. The developing world, including China, India and Brazil, committed a total of USD $156 billion (up 19% compared to 2014). China played a dominant role, increasing its investment by 17% to USD $102.9 billion, accounting for 36% of the global total. Renewable energy investment also increased significantly in India, South Africa, Mexico and Chile,” according to REN, a global renewable energy policy multi-stakeholder network.

For example, in India, solar energy is now cheaper than coal, so many utility companies there are pushing for renewables over conventional power projects. The second-largest private sector power-generating company in India, Tata Power, wants to expand its renewable energy portfolio by acquiring 300 megawatts(MW) of wind projects in northwest India, according to Cleantechnica.

Vietnam is another emerging nation that has found renewables as a major force to expand its power grid into the countryside, while also creating jobs. Vietnam’s GDP grew at an annual rate of 6.8% between 1990 and 2013, and is projected to approach 7% annually from 2016 to 2030. What’s driving the country’s effort is increased industrialization, combined with a growing population, and demand for more energy, especially electricity. This has resulted in an increase of energy consumption at an average annual rate of 5.7% between 1990 and 2012, and a rise in electricity use of 14% annually during the same period, according to the East Asia Forum.

These projects are so important that the Asian Development Bank (ADB) has named renewable energy, environmental sustainability and responses to climate change as one of the country’s top three priorities, along with ADB’s country partnership strategy for Vietnam of promoting job creation and competitiveness, increasing the inclusiveness of infrastructure and service delivery, according to a December 2016 report.

By Chuck Epstein